ECJ judgment on German VAT group system

With this judgment, the ECJ decided on fundamental questions on the German VAT group regulations. Due to the very similar legal situation, this judgment is also of interest to Austria.

General transposition of VAT group system compatible with EU law

The judgment was highly anticipated because the ECJ had the chance to take position on the general conformity of the German VAT group regulations with EU law. According to German, and also Austrian law, the head of the VAT group is the only taxable person and thus taxpayer of a VAT group. The underlying regulation of the EU Directive, however, defines the group itself as the taxable person.

In the view of the ECJ, defining the head of the VAT group as the only taxable person and taxpayer is in conformity with EU law if certain requirements are fulfilled.

No need to have a majority of voting rights

The ECJ’s statement on the requirement of the majority of voting rights in addition to majority shareholding not being compatible with EU law is essential for future decisions.

This is also relevant for Austria since the Austrian system (cf. VAT Guidelines (UStR) no 236) also requires a majority of voting rights.

Categorisation as not independent

The ECJ’s comments on the typecasting categorisation of VAT group companies as “not independent” seem unclear. Currently, transactions within the VAT group are considered not taxable (out of scope of VAT). In our opinion, the practical implications resulting from the ECJ’s statement are currently unclear.

The judgement of BFH (Federal Finance Court, Germany) following the ECJ’s judgment is still pending.